An oil refinery. Photo/Pexels
By SPECIAL CORRESPONDENT
UPI — Crude oil prices topped $55 per barrel for the first time this year in Monday trading as investors found few reasons to abandon optimism about a market recovery sparked by the Organization of Petroleum Exporting Countries putting a ceiling on oil production last week.
Growing sentiment Tuesday that the rally in crude oil prices will lead to more appetite for production helped put an end to an OPEC-fueled run for the bulls.
OPEC is looking to coordinate with non-members to cap production levels to pull the market back into balance. The agreement, reached in Vienna, would amount to a cut in production based on current output levels and a first for OPEC in roughly a decade.
Crude oil prices gained more than $10 per barrel since the agreement was reached last week and may be at a point where some players are coming in from the sidelines. Some OPEC members, and non-member states like Russia, are already producing oil at historically high levels. Hassan Rouhani, the president of Iran, said his country can sell “as much crude oil” as it deems fit.
Iran is the only OPEC member not required to curb output under the terms of the Vienna agreement.
The price for Brent crude oil fell 2.3 percent to open trading in New York at $53.65 per barrel. West Texas Intermediate, the U.S. benchmark price for oil, was off 2.6 percent from the previous close to start the day at $50.45 per barrel.
Iran’s statements on oil sales supported growing concerns that the rally in crude oil prices would actually add to, not lessen, supply-side fears. A rise in U.S. oil production over the last few years tilted markets heavily toward the supply side, pushing oil below $30 per barrel early this year.
A market snapshot from S&P Global Platts said the OPEC agreement could be thwarted if U.S. oil production increases along with crude oil prices.
“Even before the OPEC deal, analysts had been keeping a close eye on U.S. crude production for any signs of a rebound,” Geoffrey Craig, the oil futures editor for Platts, said in an emailed report.
OPEC’s production agreement won’t enter into force until January, meaning there’s nothing standing in the way of cashing in on more output at the higher December prices. In the meantime, traders will be watching figures associated with exploration and production to see which companies are responding and where.
A research note from brokerage PVM said the real factors won’t come to light until early 2017 once OPEC publishes the production figures from the Vienna agreement.
“The herd would quickly turn in case of sloppy compliance,” it said.
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